Lentis/Tata Nano and Mobility in India

Since economic reforms that created a mostly free economy in 1991, India has grown rapidly. Over the last 10 years, real GDP growth has averaged 7.44% per year, compared to 2.56% per year in the United States [1] This growth has been concentrated in urban centers, often completely passing over the rural poor. Ratan Tata, former head of the Tata Group, one of India's largest companies, had an idea that, if properly implemented, would help spread wealth to the rural poor: a cheap car that could be marketed to the lower class. Many poor Indian families use two-wheel motorbikes to travel, an unsafe practice which also limits the distance that can be traveled.

"I saw families riding around on scooters with kids standing up and the mother carrying a baby and decided to do something about it. It started as a quest: affordable transportation solution." -Ratan Tata [2]

Mr. Tata's solution to this problem was the 1 lakh ($2250) Tata Nano. The Tata Nano has received high praise for it's implementation of frugal engineering and product innovation. It was predicted to expand India's car market by 65% and cause an overall dip in prices; however, after four years, it has failed to live up to its high expectations, in many cases because of Tata Motor's errors. [3] Hormazd Sorabjee, editor of Autocar India, says "the Nano is a brilliant concept... but it is a monumental marketing blunder." Many rural Indians never heard about the car that was supposed to help transform their lives [4], and it has not been as successful as anticipated.

The target population of the Tata Nano was low income rural families who relied heavily on motorcycles. However, the weak sales of the car show that Tata Motors' marketing campaign was mistargeted. In 2010, the then CEO of Tata Motors Carl-Peter Forster admitted that the company had to "reinvent the Nano business model." [5]. In 2010 [6], cities with a population greater than 500,000 had 619 showrooms whereas towns with a population less than 500,000 had only six showrooms, which is why the rural population whose lives the Nano was intended to transform never even heard of the car. Tata Motors recognized this discrepancy and has made plans for 300 more distribution centers in rural areas. Furthermore, no financing scheme was provided at launch which deterred low income households from purchasing the car.

The sales of the Nano also suffered from negative publicity received due to reports of fires under the hood. When the car was first launched, the marketing campaign was subdued and media reports of the fires were more prominent. Monthly sales fell to 509 units during this period, far less than the target sales of 20,000 units per month [7].

The Nano was marketed as a cheap car at launch. However, the average aspiring Indian middle class household considers a car as a status symbol. The Corolla advertisement on the right shows what a customer is looking for in a car. The Nano provides far better fuel economy than the next cheapest car, but consumerism trumps economic sense. After tax and basic add-ons, the Nano costs $3500, but many families chose to save a bit more and buy the next best car for $4500. Moreover, the middle class is rising rapidly in India. McKinsey's report on India's consumer goods market shows that 77% of Indian households are expected to have annual income ranging from 90,000-1,000,000 Indian rupees ($1650-$18,350) by 2025, up from 45% in 2005 [8].

While the Nano was not popular with rural low income households, the few cars that did sell were popular among the urban youth. Tata Motors has responded to this unintended use of the Nano by targeting this demographic. The television and youtube commercials of the Nano show the changing focus of the customer base. During launch in 2009, the Nano was marketed as a family car (video advertisement in 2009), whereas the 2012 video advertisement appeals to the youth. Tata Motors has also started an aggressive marketing campaign to brand the car as a trendy, fun car through social networking and artistic collaborations. The Nano facebook page has two million fans and a merchandise store is available on eBay. Through the Nano Art in Motion campaign, artists paint the car in creative colorful themes.

The Tata Nano was designed to target those in India's lower class because many people in the lower class of India do not have transportation either due to a lack of supply or a high cost of access. Lack of transportation inhibits the lower class from looking for work, transporting goods, and obtaining health care. [9] Thus, the lower class is left to walking, bicycling, or driving animal-drawn carts. Low class families also ride on motorcycles, as this is a cheap form of faster mobility.

The design of the Nano and its low cost was an effort to provide cheap alternative transportation for families unsafely crowded on two-wheel transportation. A portion of consumers saw the Tata Nano as a viable option. For example, an Indian blogger claims that that Nano "is good for people who ride bike." [10]

The Tata Nano was ultimately purchased by the middle class and aspiring urban youth due to unforeseen economic pressures. Vishnu Mathur, the Director-General of the Society of Indian Automobile Manufacturing, claims that the "[automobile] market continues to be tough due to...high interest rates and fuel prices." [11] Thus, the characteristics of the Indian economy not only deterred many intended lower class consumers, but also attracted unintended users with more disposable income. Low class consumers are still purchasing motorcycles because of their low cost and low gasoline consumption.

India is going through a period of rapid inflation implemented by the central bank. A high borrowing rate has impacted the finances of the lower class, and they are resorting to motorbikes because "especially for short distances, bikes make more sense." [12] The chief financial officer of the Indian-run Hero MotoCorp. Ltd. claims that "the worst affected [by India's inflation] is the passenger-car market, where the dependence on loans...is high." While 30 percent of motorcycles are bought with a loan, approximately 80 percent of cars are bought with loans. [13] Bloomberg data shows that India has the third highest borrowing costs in Asia, with an increase in the repurchase rate by almost 4 percent since March of 2010. [14] When loans have such a high interest rate, the demand of the Tata Nano went down with an associated increase in demand for cheaper alternatives, like motorcycles and other less-expensive transportation.

Petrol prices are also rising, benefiting motorcycle manufacturers because people of India are traveling less and are thus using motorcycles which work well with short distances and require less gasoline per mile. Gasoline costs in India are Rs. 68.64 per liter and prices are now 26 percent higher than a year ago. [15] Passenger vehicle sales are lower than they have been for the last ten years, and "two-wheeler deliveries rose 2 percent in October, extending consecutive monthly gains since January 2009." [16]

The increase in interest rates and gas prices has not only decreased Tata Nano consumption, but those who are purchasing the Tata Nano are those in the middle class and aspiring youth. Lower class Indian citizens continue to purchase cheaper but unsafe motorcycles and bikes, leaving the purchasing of the Tata Nano to unintended consumers.

Tata misjudged the public perception of rural farmers whose land they were using for the Tata Nano factory. In May 2006, Tata announced plans to build a factory in the town of Singur, West Bengal, approximately one hour outside of Kolkata.[17] When economic regulations were relaxed in 1991, much of West Bengal was rapidly converted back to farmland by the Marxist government, with thousands of farmers receiving small parcels of land. By 2006, Chief Minister Buddhadeb Bhattacharjee and Industry Minister Nirupam Sen (of the same Marxist Party) were intent on bringing India's rapid growth to West Bengal, and saw the Nano factory as an opportunity to do so. It was estimated that the Nano factory would bring thousands of jobs to the region, and the politicians felt pressured to make concessions to the Tatas in order to ensure economic growth.[18]

"The Tata factory will certainly come up in Singur. We are trying our

best to provide land to those who want to set up factories."

-- Chief Minister Bhattarcharjee

To provide land for the factory, Bhattarcharjee and Sen employed the arcane 1894 Land Acquisition Act, a version of eminent domain passed by the British during their rule to build public works, and bought 997 acres of farmland using state funds. The law's use of the phrase "public purpose" has been interpreted by the Kolkata High Court as a socio-economic decision best left to individual governments, meaning that Bhattacharjee and Sen were probably within their legal rights. However, roughly 2,250 of the over 13,000 farmers refused to sell their land. They felt their cropland was fertile enough to make a living, and that being bought out by the government was a violation of their rights. [19] Many of the urban poor from Kolkata and other larger cities joined the farmers in the fight, arguing that the peasants have emotional bond with the land, and money cannot compensate for this loss. [20]

Their champion in this case became Mamata Banerjee, the leader of the Trinamool Congress opposition party. She rallied the coalition of farmers and urban poor to her cause, energizing them through a 25-day hunger strike in December 2006. Over the next year and a half, she stood behind rallies, human blockades, and massive strikes that eventually caused Tata to abandon the Singur site in October 2008, despite investing over Rs. 15 billion ($275M) in the project. Banerjee and her party received strong public support for their efforts, and won a large victory during May 2011 elections, unseating the Marxist party for the first time in 30 years.[21][22] Tata instead built the factory in Gujarat, India, sparking counter-protests in Singur from those who supported the factory because of its economic benefits, but the decision had been made. [23]

This debate over the constitutionality of the Land Acquisition Act and the power of the government to exercise eminent domain is still being fought in the courts. Mamata Banerjee continues to promise that all farmers will get their land back[24], but the matter will be heard by the Indian Supreme Court during the next session. The Kolkata High Court declared the 1894 Act unconstitutional. If this decision is upheld, all land would immediately be returned to the farmers. If the decision is overturned, however, this will have far-reaching implications for how businesses approach capital investments in India.

At the moment, the future of the Nano is very uncertain. It could still catch with the original intended market in India, and Tata Motors wants to sell it internationally as well. Within three years, US customers might be able to buy a slightly reconfigured Nano for under $10,000, although there are significant distribution obstacles to overcome. [25] There are few predictions of what the future might hold for the Nano, but the fact remains that it is a brilliant engineering solution that, so far, has failed to appropriately manage the social interface of technology.